March 03, 2010

Most Americans, after buying a product from a store, expect that they will be able to return it -- at least within a reasonable amount of time and assuming the item is undamaged. This instinct is borne out by the policies of most retailers, who generally allow returns of most items within a set time period, for a refund, exchange, or store credit. In Europe, this is a right explicitly protected by contract law. In the US, by contrast, the rules vary from state to state, but in general there is no legally protected right to return an item. In his latest WIP talk, Professor Eric Posner presented a paper he and Professor Omri Ben-Shahar are working on regarding what they call the "right to withdraw" from these contracts (alas, there are sound prudential reasons for not titling the proposal the "right of return").

The core insight Posner and Ben-Shahar develop is the function allowing the return of an item serves in terms of letting consumers assess an item's value. For some purchases, such as home or office furniture, it is very difficult to determine whether the purchase is worth the money without some time experiencing it in your home. You need to know if the chair is comfortable, or if the futon matches your living room color scheme. Allowing consumers to return a product makes them more willing to buy, because they know they'll have the opportunity to determine with greater certainty the actual value the product holds to them.

There is, of course, a story from the seller's side as well. Sellers want buyers to feel comfortable purchasing their products, but they also have to worry about depreciation if the goods are returning after weeks of use. The speed at which depreciation occurs varies from product to product -- perishable items depreciate quickly, permanent furnishings more slowly. Some goods, due to cultural taboos, lose essentially their entire resale value upon being used once, which is why even stores which have generally lenient return policies won't let you return a casket. Other goods, such as music or electronic media, are vulnerable to copying, and thus returns are usually prohibited after the consumer opens the box.

The fact that most stores allow returns, and most consumers expect some reasonable ability to return products they buy, counsels turning some right of withdrawal into at least a default rule, to insure that outlier stores don't exploit consumer expectations. But the content of such a rule is more complicated. Ideally, it should maximize the ability of the consumer to gain information about the value of the product, while minimizing the risk posed to sellers via depreciation. In theory, consumers could just have an unlimited right of return subject to paying the value of any depreciation. But depreciation is extremely difficult to measure objectively. So, as an alternative, Posner and Ben-Shahar propose using time as a proxy -- as more time passes (with a rate that varies depending on the type of good), the item will be presumed to have depreciated in value more. This prevents consumers from externalizing the costs of excessive inspection and deliberation, while still allowing them some ability to back out of the contract if the goods don't turn out to be as valuable to them as they initially estimated.

The second part of the paper looks for traces of this sort of doctrine in American law. And they find one potential source in the famous ProCD v. Zeidenberg case, reviled by the bulk Contracts professors and students alike (albeit for different reasons). ProCD held enforceable additional contract terms contained "inside the box" of a computer that was purchased remotely (and were a black box to the buyer at the time he purchased the good). The 7th Circuit concluded that giving all the terms over the phone would have been impracticable, hence, the "acceptance" of the contract only came after the consumer opened the box and read and assented to the terms. This, Posner and Ben-Shahar argue, is essentially a form of the right to withdraw -- once the consumer receives the goods and finds out more information about them (here, certain contractual terms he may find overly onerous), he has, according to the court, the legal right to return the item as a matter of contract law.

Another parallel comes from the right to reject non-conforming goods, codified in the UCC. Though there are differences, two key assumptions overlap with the idea behind a right to withdraw. The first is the assumption that the buyer might not have important information regarding the quality or kind of the goods until they actually arrive at her doorstep. The notion that there is some information about the product that the buyer is unlikely to be able to obtain until after they are in her presence is similar to a right of withdrawal. Second, the UCC conditions rejection on it occurring within a reasonable amount of time after the buyer discovers (or should have discovered) the defect, and before the goods have had a change in condition (that isn't caused by the defect). This rule is designed to protect the rejection rule from being used to exploit sellers and put them at too much of a disadvantage vis-a-vis their customers. The rule effectively creates a trade-off similar to the one Posner and Ben-Shahar recommend for returns: the longer the good is in the possession of the buyer, the greater the defect necessary to justify returning it.